Profit exceeds expectations at this FTSE 250 growth stock. Time to buy?

With the ongoing Italian political crisis capturing investors’ attention, it’s easy to forget that several companies reported to the market this morning. One example was grocery and consumer goods retailer B&M European Value Retail SA (LSE: BME).

With its shares 15% off the highs reached in February, I think the company could be a decent option for opportunistic growth hunters, even if it still trades on premium valuation to many in the sector.

Solid profits

Despite experiencing a weak fourth quarter due to the cold weather, group revenues rose 22% at constant currency to £2.98bn compared to the previous year. Adjusted pre-tax profit also increased by a very solid 16.5% to £221.5m for the 52 weeks to 24 March, exceeding analyst expectations.

With numbers like these, it’s no surprise that B&M is bucking the trend seen across the retail world and expanding its estate at a fair clip. A total of 47 new stores were opened over the year, with another 45 planned for the current financial year. Elsewhere, the acquisition of Heron Foods seems to be playing out well with an “excellent performance” seen in the eight months it’s been owned by B&M. A huge distribution centre in Bedford is also under construction and due for completion in 2020.                                                    

Commenting on results, CEO Simon Arora reflected that the company’s value-focused model was “highly relevant” for the wobbly economic climate in which we find ourselves. The company had also made a “pleasing start” to the new financial year with like-for-like revenue growth of 3.1% recorded in the first eight weeks.          

Trading at 18 times forecast earnings for the 2018/19 financial year, B&M is clearly one of the more expensive retail stocks out there — a fact which may explain why the stock was trading fairly flat in early trading this morning. That said, it stands out as a shining example that not everyone in the industry are going through tough times. Indeed, management’s decision to increase the final dividend by just over 23% to 4.8p per share (bringing the full-year payout to 7.2 per share, up 24.1%) is indicative of just how confident it is on the company’s outlook. A PEG ratio of 1.28 also suggests that the shares still offer reasonable value for the expected earnings growth.  

Given the above, I wouldn’t bet against B&M’s share price resuming its march higher over the medium term.

Reassuringly expensive?

Another option for those keen to capitalise on UK shoppers’ love for a bargain would be Primark owner Associated British Foods (LSE: ABF).

April’s interim numbers for were mostly fine with sales and profit growth achieved in all of the company’s businesses with the exception of Sugar segment. Group revenue rose 3% in constant currency to £7.42bn with adjusted pre-tax profit rising 1% to £628m. Management’s full-year outlook was unchanged.

True, the shares aren’t cheap. A forecast price-to-earnings (P/E) ratio of 20 for the financial year to September is a huge contrast to high street stalwarts such as M&S and Next.

Nevertheless, the diversified nature of the company’s operations and overseas growth potential means that it’s less dependent on the UK shopper for sales and profits than peers. A net cash position of £123m is also attractive compared to the stretched balance sheets of rivals.

Should consumers become even more cost conscious as we approach our departure from the EU, I think the £21bn-cap FTSE 100 constituent could be in a sweet spot.